ABSD Rates Increased as Government Concern Grows

The government has just announced (July 5th) that it is increasing ABSD rates while tightening its loan to value (LTV) limits. This has come on the back of a welcomed improvement in the housing market, with many developers preparing themselves for profitable times ahead. Looking behind the headlines however, it is not all bad news, with many buyers being unaffected by the changes.

Prevention rather than cure

The background to the changes is the recent recovery in the private property market where prices have risen by 9.1% over the last 12 months. Though this is nowhere near the levels of the past in terms of % increase, it is enough to cause the government considerable concern, and they have decided to act now as opposed to letting the situation run potentially out of control.

In a statement, the Minister for National Development, Mr Lawrence Wong, said that the measures were in order to prevent the need for severe corrective action further down the line, as other parts of the economy were not mirroring what was going on in the property market.

The Changes to ABSD

First of all the good news. Singapore citizens and PR’s buying their first home will not be affected (figures remain at 0% and 5% respectively). For those buying a second property however, a 5% increase will come into effect. This means that the new rates for Singapore citizens will become 12% and that for PR’s 15%. The rates for third and subsequent properties will be 15% for both citizens and PR’s.

Foreigners buying any residential property will see their rate increase to 20%, but the real losers in this will be developers. Entities (anyone deemed not to be an individual) have had their rate rise 10 percentage points up to 25%, while developers will be levied an additional non-remittable 5% on top of that.

These rates came into force on the 6thJuly, though provision will be granted for anyone granted an OTP before that date.

Tightening of Loans

In addition to the rate increases, people’s ability to borrow money to fund property purchases will also be curtailed. On the same date (6thJuly) LTV limits were reduced by 5%. In practice this means that an individual can now borrow 75% of the property’s value, dropping from 80% before the changes. For instances where the loan tenure exceeds 30 years, or goes past their 65thbirthday the rate will reduce from 60% to a new figure of 55%.

One thing to note is that these reductions only apply to applications for loans from financial institutions. Loans granted by the HDB will not be affected by the measures.

The final measure announced involved mortgage equity withdrawal loans, with their LTV limits also being reduced. The new figures are 75% for those wanting to purchase an additional residential property and who do not have an outstanding housing loan, and 45% for those who do.